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INTEREST-RATE FEARS FUELING A RETREAT FROM BOND MARKET

Concerned that Federal Reserve policymakers will push up short-term interest rates for the sixth time this year when they meet Tuesday, individual investors have been yanking millions of dollars from bond funds, according to data gathered for Money magazine's Small Investor Index.

In the past two weeks alone, investors have pulled nearly $1.3 billion out of bond funds, according to AMG Data Services of Arcata, Calif. Moreover, a spot check of large fund companies suggests that investors are especially wary of short- and intermediate-term issues. For example, the $543 million T. Rowe Price Short-Term Bond fund has seen outflows of $34 million in the past month. And more than $50 million has come out of Strong's two short- and intermediate-term bond funds, which hold about $1.4 billion in assets.Analysts believe investors may be right to avoid shorter-term bonds right now. While long-term issues suffered bonds' worst losses earlier this year, additional Federal Reserve rate hikes may do more damage to short- and intermediate-term bonds. The reason: The fact that the Fed is acting to control inflation will soften the blow to long-term bonds.

Yet analysts warn that trying to time bond-market investments according to daily developments can be dangerous. "Predicting interest rates is like trying to catch a falling pitchfork," says James Stack, president of Investech research in Whitefish, Mont. "It's pretty when you do it, but when you miss you get awfully bloody."

Last week, the Money Small Investor Index, which tracks the typical individual's holdings, fell $554 to $46,254. Stocks lost $507, and bonds dropped $68. CDs and money market-funds added $10. Gold chipped in $16.